Making KiwiSaver compulsory carries moral obligation

Making KiwiSaver compulsory carries a moral obligation
to ensure that Kiwisaver providers provide clearer
information so more New Zealanders can make informed
investment choices, according to a financial literacy
expert.

Katherine Percy - Chief Executive of adult
literacy development organisation Workbase - says research
shows that many people lack sufficient knowledge and skills
to make sound investment decisions.

This is not
helped by KiwiSaver providers doing too little to help the
public to make informed choices about their contributions
and investments.

“People with low financial
literacy could be put at risk if the Government forces them
to invest in KiwiSaver without balancing that expectation
with extensive investment in financial literacy skill
development programmes, and also compelling KiwiSaver
providers to do much more to build customers’
understanding,” she says.

“Effective decision
making about KiwiSaver requires people to have strong
financial literacy knowledge and skills. Yet research shows
that around half of New Zealand’s adult population has low
numeracy and / or literacy levels.”

Although most
New Zealanders can read, write and use numbers, many people
lack the skills and knowledge needed to understand the
unfamiliar concepts, technical terminology and multilayered
information needed to make choices about KiwiSaver.

Low financial literacy is a significant issue for
KiwiSaver because many people (even those with good literacy
and numeracy skills) have little or no investment
experience. Research suggests that more than half of
KiwiSaver members know little about the scheme they are in,
and most don’t realise that there is no government
guarantee.

Ms Percy says that, should KiwiSaver
become compulsory, then the Government and KiwiSaver
providers would both have a moral obligation to ensure
people are making informed decisions.

“Although
all types of financial institutions could do more to build
people’s financial literacy skills and knowledge,
KiwiSaver providers have a stronger obligation because their
products require a higher degree of understanding than more
commonly used financial services.”

“Most New
Zealanders don’t understand important investment concepts
such as risk and diversification, which is one reason why so
many have been badly burnt in the past by investment
decisions that have gone wrong.”

Ms Percy says
that although some KiwiSaver providers, banks and other
financial institutions have taken steps to provide
information for customers, much more needs to be done.

“People need more basic information that increases
their knowledge and understanding around important financial
concepts and terminology.

“KiwiSaver providers
should come from a standpoint that assumes people know
little because, in most instances, that will be the case,”
she says.

Enhancing New Zealanders’ ability to
make informed investment choices will take time and will
require providers to progressively and repeatedly provide
information that educates customers.

Ms Percy notes
that many KiwiSaver providers pay lip service to improving
their customer’s financial literacy. “I am aware of at
least one major provider’s call centre staff being
required to handle enquiries within a given timeframe, which
means they often conclude discussions even though they know
that customers have not understood the information they have
been given.”

“Compelling New Zealanders to
invest in KiwiSaver is a simplistic solution that could
backfire badly unless it is balanced by comprehensive and
sustained investment in improving the population’s
financial literacy.

“Making this investment will
help people’s lives in many ways, thus reaping long-term
benefits that go far beyond KiwiSaver.”

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